Freeserve threatens legal action against UK Govt

Tax loophole row rumbles on

Freeserve is prepared to take legal action against the British Government unless it resolves a loophole which excludes some Internet companies from paying tax.

The UK's biggest ISP has lobbied for a change since the summer but it is becoming increasingly frustrated at the delay.

Under the current law, ISPs based outside the European Union are not liable for VAT (Value Added Tax). Freeserve believes this is giving companies such as AOL an unfair competitive advantage while depriving the Treasury of millions of pounds in lost tax revenue.

Customs and Excise - which collects VAT - has completed its review and passed its recommendations to ministers. Freeserve company secretary David Melville has written to Treasury Minister Paul Boateng wanting to know when a resolution to the matter is due.

In the letter seen by The Register Mr Melville warned: "In the event that the position is allowed to drag on much further, we will have no option but to pursue a remedy against the UK Government before the European Commission, arguing that the Government's failure to act puts it outside the scope of current community law."

Freeserve's CEO John Pluthero put the matter more bluntly: "This looks as if the UK Government is running scared of American lawyers and lobbyists, and so we should not be surprised that they don't give a toss about UK companies having a level playing field on which to compete.

"It's open season against British business by the UK Government at the moment and it seems as if we'll have to take the matter to a higher jurisdiction to get any real progress," he said.

Freeserve has also written several letters concerning the matter to ecommerce minister, Douglas Alexander, but has yet to receive any reply - not even an acknowledgement.

A spokeswoman for AOL declined to comment ,saying instead that this was a matter for Freeserve and the UK tax authorities.

Earlier this year Freeserve threatened to move its business outside the EU unless the tax loophole was closed. ®